Setback for splits victims

HUNDREDS of victims of the split-capital investment trust scandal will have to pursue individual court claims against the firms that sold them.

The High Court has thrown out a bid by solicitors Class Law to have cases treated as a class action, but this has opened the door for investors to make individual claims through the courts or the Financial Ombudsman Service.

Tens of thousands of people invested in split-capital trusts believing they offered safe returns for pensioners or parents saving for school fees.

Splits had several types of share, including zero dividend preference shares, which paid no income but supposedly gave near certainty of a profitable return after a fixed term.

But some trusts invested heavily in each other, leading to a domino-like collapse when share prices fell.

Many of the claimants in the class action are among the 35,000 investors who have registered for a share of a £144m compensation fund set up by City watchdog the Financial Services Authority. Only zero holders will be compensated.

This payout is expected to be announced in the next few days, but many splits investments do not qualify for compensation because the firm that sold the splits is not one of the 18 that signed up to the scheme or because of technicalities.

In a class action, a judge would rule on two or three cases and the outcome could then be applied to dozens of similar cases, saving the claimants time and legal costs. The court decision means that each claimant must now present their own individual case.

Stuart Taylor, head of financial services litigation for Class Law, says that many investors have not qualified for compensation from Fund Distribution Limited, the company set up to hand out the money, because they had invested as groups.

Among the 400 cases that Class Law has taken on are a registered charity and a dog-walking association.

Mr Taylor says: 'Because of the way that FDL was set up, many investors have investments that qualify for compensation and some that do not. Some are finding that claims they thought would qualify are being rejected.

'Others are waiting to find out how much compensation they will get before deciding whether to make a legal claim.'

It is expected that during the first round of compensation payments investors could be offered 50p for every £1 they put in. Once they receive the offer, investors can then decide whether to decline it.

Mr Taylor expects most investors to accept compensation if it gives around 50p, but any less and he predicts many will be tempted to reject it and follow High Court or Ombudsman claims.

However, this poses its own risks since judges may decide that the claimant had already had the chance to claim compensation.

Around one-third of splits investors are already thought to have missed the deadline for applying for compensation. And those who have qualified have been frustrated by delays that first postponed the payout announcement from December 2005 to January, and then March.

A spokesman for FDL could not confirm when or what the compensation announcement would be.